The Department for Business, Innovation and Skills (BIS) has announced potential changes to employment law in an attempt to “give firms more flexibility and confidence in managing their workforce”, a statement from the department says.

The changes have discarded the controversial proposals for no-fault dismissals, which surfaced in the Beecroft Report, published in May.

Among BIS initiatives are a consultation to reduce the current £72k cap on compensation for unfair dismissal claims, proposals to streamline employment tribunals by making it easier for judges to dismiss weak cases and support for settlement agreements, which would change the way employment could be terminated.

The consultation provides a template letter and guidance on how employers and their workers would reach agreements, and the conciliation service Acas has said it will provide a new code of practice for these agreements. The proposals are that the current upper limit for compensation would reduce from £72,300 to either 12 months’ pay and/or a new, reduced upper limit.

Mark Taylor, employment law partner at global law firm Jones Day, says that given that the median award is around £6k in successful cases, the current £72k cap “encourages employees and their advisers to push for unrealistic settlements and therefore makes amicable departures harder to achieve”.

Business secretary Vince Cable comments: “Britain already has very flexible labour markets. That is why well over 1m new private sector jobs have been created in the last two years, even when the economy has been flatlining. 

“But we acknowledge that more can be done to help small companies by reducing the burden of employment tribunals, which we are reforming, and moving to less confrontational dispute resolutions through settlement agreements."

The Trade Union Congress (TUC) has welcomed the fact that no-fault dismissals are not among the proposals, with general secretary Brendan Barber saying it “would have would have set workers’ rights back decades and created huge insecurity in workplaces throughout the country”. 

However, Barber added that reducing unfair dismissal payouts “will let bad employers off lightly and deter victims from pursuing genuine cases”.

Barber adds: “We are pleased that Adrian Beecroft’s proposal to allow employers to fire employees at whim has been ignored. This would have would have set workers’ rights back decades and created huge insecurity in workplaces throughout the country.

“Making it easier for bad employers to get away with misconduct is not the way to kick start our economy and will not create a single new job.”